Becoming a landlord is an option you might consider if you’ve recently inherited a property, or if you need to make a move but aren’t sure you want to sell. While renting property may be a great investment vehicle for some homeowners it’s not for everyone.
Since we routinely deal with landlords in Dallas who cannot get out of the business fast enough, we thought we’d take the time to ensure that you have all the information you need to make an informed decision about whether or not taking on a tenant is going to be your wisest move. Here are a few things you need to consider before you put up that “For Rent” sign.
You need money in the bank.
Taking on tenants is essentially like building a business. You need to have some working capital in the bank.
This money will cover several different contingencies. For example, if you are still carrying a mortgage on the property then you’ll need money to cover months when the property is vacant. You’ll also need money to cover the months its occupied, but the tenants aren’t paying the rent. Either eventuality is a very real possibility.
You need money even if you own the property free and clear. Tenants are going to call you to fix maintenance problems. They’re not going to be amused to hear that you can’t fix the leaky roof or unclog the toilet because you don’t have the money to hire a contractor. And if you’re not a handyman who lives nearby and who can get in there and fix those problems yourself then you won’t have any other choice.
Properties need constant care. If you’re going to become a landlord you need to account for that.
The property has to be in good shape before you can rent it out.
There are two reasons for this.
First, you’ve got to sell tenants on the idea of signing your lease. If the property is in terrible shape then you’re going to have a hard time commanding rents at the market rate. You’re also only going to attract questionable tenants, if any.
There’s also the matter of landlord-tenant law. You are required to provide safe housing if you’re going to try to take on tenants. If any of the home’s foibles could render it unsafe then you could be opening yourself up to massive financial and legal troubles as tenants complain, or even sue.
This will be a never-ending struggle. The property will have to be returned to like-new conditions every time a tenant moves out. Some tenants will make this process more challenging than others.
You should think twice before becoming a long-distance landlord.
Trulia.com recommends living near your property so you can check in on it on a regular basis. Living close by also allows you to save some money by doing some work yourself. If you can’t live close by then you might have to hire a property management company to take care of these problems for you, which means you’ll lose at least 10% of the property’s income potential.
You have to update your homeowner’s insurance policy.
Homeowner’s insurance might deny your claims if you don’t have a policy that’s designed to carry tenants. Your old policy simply will not apply. Speak to your insurance agency and get a new rate quote before you decide to proceed. You might need to factor the costs of the new insurance policy into the amount of rent that you charge.
You need an understanding of Landlord-Tenant law.
Or, you need to hire a good real estate lawyer.
You could end up having to take tenants to court in order to evict them. You could end up getting sued if tenants don’t feel like you’ve met your obligations.
A lease is a legal contract. Legal disputes are expensive. A good lawyer can help you minimize risks. You should also get a lawyer’s help when it comes to drafting a lease agreement. And, of course, it’s a good idea to have a lawyer on hand should any disputes actually arise.
You need a way to screen tenants.
We’ve heard dozens of “bad tenant” horror stories.
Tenants who didn’t pay rent, and who took months to evict. Tenants who conduct illegal activity on the property. Tenants who trash properties in unspeakable ways, requiring hundreds of thousands of dollars in repair money.
Good tenant screening services cost money, but it’s worth the investment if you’re going to proceed. You need to make sure they have the means and the will both to pay the rent and to take care of the property.
You can decide what your own rental criteria will be (some landlords will rent to ex-convicts, for example, while others will not), but you should be sure that you do have some.
You have other options.
After reading all of this you may decide that becoming a landlord is not for you. If so, you need to find another way to deal with your property.
One financially advantageous way to handle the situation would be to call us to get an offer on the property. We buy houses in Dallas as-is, which means you don’t have to spend any money on repairs. You will get a check, and the chance to avoid all these headaches. At that point, you can either pay off your mortgage company or enjoy the easy windfall.